Multi-State Water Quality Trading Market Receives Phase 2 Funds

American Farmland Trust (AFT) and their project collaborators are the recipients of a $1 million Conservation Innovation Grant (CIG) from the U.S. Department of Agriculture (USDA). The grant will augment their work to develop the first interstate water quality trading market for agriculture in the nation. In this second phase of the project, the collaborators will launch pilot water quality trades between farmers and public utilities in the Ohio River Basin.

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American Farmland Trust (AFT) and their project collaborators are the recipients of a $1 million Conservation Innovation Grant (CIG) from the U.S. Department of Agriculture (USDA). The grant will augment their work to develop the first interstate water quality trading market for agriculture in the nation. In this second phase of the project, the collaborators will launch pilot water quality trades between farmers and public utilities in the Ohio River Basin.

Through this market-based approach, facilities that face high pollution control costs, such as public utilities or manufacturers, will buy nutrient reduction credits from farms with lower costs. The goal is to improve water quality more efficiently and inexpensively. Farms will be able to sell nitrogen and phosphorus, potentially generating greenhouse gas reduction credits from on-farm conservation practices that result in new income for their operations.

"We're thrilled to continue our leadership of this cutting-edge project in the agriculture and conservation sector," says Ann Sorensen, AFT's director of research. "Thanks to this USDA grant, we'll be able to move this regional market into its active trading phase. It's the culmination of a great deal of work on the ground with collaborators and stakeholders." In years to come, Sorensen and others believe such environmental trading markets will become a favorite tool in a farmer's toolbox of ways to improve water quality.

"The Ohio Farm Bureau is excited to continue our involvement with the opportunity to move the Electric Power Research Institute (EPR)-led Ohio River Basin nutrient trading project from concept to reality," adds Larry Antosch, Senior Director, Program Innovation and Environmental Policy for Ohio Farm Bureau Federation (OFBF), another project collaborator. "In addition to producing food and fiber, farmers provide many ecosystem benefits: clean water, clean air, improved soil quality and wildlife habitat, to name a few. Participation in pilot trades provides farmers with the unique opportunity to help shape the multi-state nutrient trading program."

Water quality trading creates a market that pays participants for reducing the pollution they emit into watersheds. It creates a market that allows pollution sources who reduce their nutrient emissions or releases below an agreed-upon baseline to generate credits to sell to point sources required to reduce their nutrient releases. Such point sources include public utilities or manufacturing operations. Subsequently, participants are given a financial incentive to reduce their own pollution.

In this phase of the project, AFT will be reaching out to local Soil and Water Conservation District offices and other local contacts in pilot trade areas to locate and work with farmers willing to install conservation practices and sell the resulting credits to the participating utility companies. AFT and Ohio Farm Bureau are also chairing the agricultural stakeholder committee, which will provide valuable feedback on the market structure to the collaborators with an eye to making the market work for both the sellers and the buyers.

This project will address point-source emissions and non-point-source emissions, including agricultural runoff. The Ohio River Basin contributes about 35% of the water flowing down the Mississippi River into the Gulf of Mexico. While agriculture is not the sole water pollution contributor in the Mississippi River Basin, it is thought to contribute up to 65% of the nitrogen and phosphorous sediments that cause hypoxia in the Gulf of Mexico. The Ohio River is a significant contributor of agricultural sediments into the Mississippi River Basin.

Gulf hypoxia is a process in which an area of ocean loses oxygen and subsequently the ability to support life. These areas, known as dead zones, are attributed to man-made pollution, particularly fertilizer runoff from households, manufacturing, industrial and other processing, and agriculture.

AFT is collaborating with the project lead, EPRI, along with Hunton & Williams LLP, the University of California at Santa Barbara, and Kieser and Associates, LLC. American Electric Power and Duke Energy are contributing an additional $400,000 for a Phase 2 total of $1.4 million. The project also receives regional support from the OFBF, Miami Conservancy District in Ohio, and the Ohio River Valley Sanitation Commission (ORSANCO). The Ohio River Basin is an area that spans 14 states. Phase 2 focuses on Ohio, Kentucky, Indiana, West Virginia, Pennsylvania, Tennessee and Illinois. The overall goal of the collaborators is to improve water quality in the Ohio River Basin and reduce hypoxia in the Gulf of Mexico.

In addition to the Ohio River Basin project, AFT works on environmental markets in key watersheds around the country, including the Chesapeake Bay, the Puget Sound, and the Sauk River watershed in Minnesota. Learn more online.